2013 (7) TMI 93 - HC - Income Tax

Penalty u/s 271(1)(c) - Tribunal cancelled penalty - Held that - It could be noticed from the material that the penalty proceedings were initiated essentially on the ground that the consumption of the material for an year under consideration was 20% more whereas the consumption of the power and fuel was less than the previous year - Such ratio was found unbelievable by the Assessing Officer - It was held to be furnishing of the inaccurate particulars and concealment on the part of the assessee - Tribunal has rightly noted that these circumstances were aptly explained by the assessee who had reiteratively mentioned that there was extraordinary inflationary trend during the year under question in chemical business of the assessee as compared to the previous year - Decided in favour of assessee.

Summary

Issues:
Challenge to cancellation of penalty under Section 271(1)(C) by the ITAT.

Analysis:
The Tax Appeal under Section 260A of the Income Tax Act, 1961 was filed to challenge the order of the Income Tax Appellate Tribunal (ITAT) cancelling the penalty levied under Section 271(1)(C) by the Assessing Officer. The main issue was whether the Tribunal erred in law in cancelling the penalty on the disallowance of consumption of raw materials made at 20% without appreciating the fact that the assessee failed to produce its books of accounts despite several opportunities.

The brief facts of the case revealed that the assessee, engaged in the business of dying and printing of Art Silk Cloth on a job work basis, had filed a return of income declaring it to be NIL. However, the Assessing Officer assessed the total income at Rs.9,06,980 after a scrutiny assessment under Section 143(2) of the Act. The additions made by the Assessing Officer were confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)), leading to the initiation of penalty proceedings under Section 271(1)(C) against the assessee.

The penalty was levied by the Assessing Officer, challenged before the CIT(A), partially allowed, and further appealed before the ITAT. The Tribunal, after considering submissions from both sides, cancelled the penalty order, which led to the current Appeal challenging the cancellation of the penalty.

Upon hearing the arguments, the Court found that the Tribunal had not committed any error requiring interference. The penalty proceedings were initiated based on the discrepancy in material consumption, which the Assessing Officer deemed as furnishing inaccurate particulars and concealment by the assessee. However, the Tribunal noted that the circumstances were explained by the assessee, attributing the increase in consumption to an extraordinary inflationary trend in the chemical business during the relevant year. The Tribunal considered the explanations provided by the assessee and the absence of documents due to the closure of the company and the departure of directors. The Tribunal also observed that the accounts were audited, and the Auditor's report was submitted with the income tax return. Consequently, the Tribunal concluded in favor of the assessee, finding no willful non-submission of documents. The Court agreed with the Tribunal's decision, stating that no question of law, much less a substantial question of law, arose in the Tax Appeal, leading to the dismissal of the Appeal.

In conclusion, the Court upheld the Tribunal's decision to cancel the penalty levied under Section 271(1)(C), emphasizing the adequacy of the explanations provided by the assessee and the absence of willful non-compliance with document submission requirements.